The federative issue regarding the lottery sector – including sports betting and online gambling, which, by law, are considered forms of lotteries in Brazil – has been under discussion for a while, as contradictory regulations have alternately allowed either the state to provide lottery services or the Federal Government to hold exclusivity over them.
In 2020, the Federal Supreme Court (STF in Portuguese), in the joint judgment on three distinct lawsuits, established that, under the regime of the 1988 Constitution, there is no monopoly held by the Federal Government, therefore states are allowed to provide lottery services. STF’s decision also established two relevant premises: (a) states may only provide lottery services within their respective territories; (b) the law-making power is held exclusively by the Federal Government, meaning states cannot offer lottery types not provided for in federal legislation.
Following this ruling, some states began procedures to delegate lotteries and sports betting. Since then, there has been a discussion regarding the legitimacy of state lotteries that do not impose limitations on offers outside their respective territories. In this regard, particularly when it comes to the authorizations issued by the Lottery of the State of Rio de Janeiro (Loterj in Portuguese), there are discussions between Rio de Janeiro and the Federal Government, as well as between Rio de Janeiro and the state of Paraná, the latter being a legal dispute. Loterj has also filed a lawsuit to order the Brazilian Telecommunications Agency (Anatel in Portuguese) to shut down unauthorized betting websites in the state.
This discussion brings forth two points of the regulation (and of STF's decision). The first point is the potential overreach of STF's decision, which requires states to offer services only within their territory, and this is especially important in the context of online sports betting, as controlling geographic access in a virtual environment is more challenging and forces states to provide mechanisms that aim to restrict access from users outside their territories. The second point is the “protection” granted by Law No. 14,790/2023 to bookmakers and online gambling companies operating in the country, which cannot face sanctions or restrictions until the Federal Government's regulation becomes final, within a timeframe determined by the Ministry of Finance – according to recent Ordinance No. 827/2024, such deadline is December 31, 2024. Therefore, states cannot take action against these companies if they have not been authorized by states to operate in the country.
Another relevant point in the dispute between the Federal Government and states was raised by Law No. 14,790/2024, which established rules for state lotteries in Article 35-A. Paragraph 2 of Article 35-A prohibits the same company from being granted more than one concession in more than one state. In practice, any lottery company, bookmaker, or online gaming operator that has already been authorized or obtained a concession cannot have any further ones, in the same state or another. This restriction seems unwarranted, as it ultimately sacrifices the competitiveness of bids or authorizations granted by states, which will have fewer eligible companies, since obtaining a concession or authorization prevents the company from participating in new opportunities.
Clearly, the restriction aims to reduce competition for the federal lottery operator, which will benefit from competing with operators whose activities are significantly limited, restricted to only one operation. At this point, it seems that the Federal Government has overreached its law-making power, compromising the competitive environment and, more importantly, challenging the autonomy of states, thus violating the federative pact.
In light of this, seven states (São Paulo, Rio de Janeiro, Minas Gerais, Acre, Piauí, Paraná, and Mato Grosso do Sul) and the Federal District filed a Direct Action for the Declaration of Unconstitutionality (ADI in Portuguese) against this restriction – and against the restriction on advertising outside each state's territory, as provided for in paragraph 4 of Article 35-A. In this direct action, the states and the Federal District argue that both provisions violate the Brazilian Constitution because: (a) they infringe free enterprise and free competition; (b) they violate the federative pact by imposing limitations on the autonomy and jurisdiction of states to provide lottery services.
In a decision, Justice Luiz Fux, who reported on the ADI, determined that there would be a summary judgment on the merits of the case, which, in practice, will expedite the STF's resolution of the issue, likely bringing an end to the discussion regarding the legitimacy of the two legal provisions. The trend, according to precedents from the STF itself, is for the action to be held valid, declaring the unconstitutionality of both provisions, leading to greater legal certainty.
However, the issue of the dispute involving territoriality is likely to take longer to be resolved and will probably only be addressed after a new decision from the STF establishing the exact limits of its previous ruling – which determined that the Federal Government's monopoly should end. The expectation is that the STF will reaffirm the limitation of state operations to the geographic boundaries of each state; otherwise, there will be an ongoing competition between states, which is not favorable for them – and, not coincidentally, Paraná is already in a legal dispute with Rio due to the lack of limitation established in Rio de Janeiro’s lottery.
It is important to emphasize that, even in this scenario, there are no risks for companies wishing to obtain authorization from the Ministry of Finance in view of these legal disputes. The only concern is that, without control over territoriality, an operator could end up being a competitor nationwide, even if it has obtained authorization from only one state. In other words, an operator could be competitively relevant at national level if, based on an authorization or concession from one state, it offers its products throughout all the states, even having authorization or a concession from only one.
